Allocation of goods among locations in a retail chain involves significant stakes for operators, particularly for fashion or seasonal goods. A fashion program typically consists of a number of items that will be sold for a fixed period of time. For each item, the retailer typically purchases a fixed number of units in advance and may not have the opportunity to reorder the item from the supplier. During the selling season, the retailer needs to send product from its distribution center to each of its locations to ensure that locations are in-stock in as many items as possible. As the end of the selling period approaches, retailers typically reduce the price of unsold items (markdowns) to ensure that all or substantially all of the inventory associated with the program is sold at or near the end date of the program.
Determining the appropriate quantity of each item to send to each location involves a number of considerations. It is useful to predict the rate of sales over any period of time during a fashion or seasonal program, but this is difficult as sales rates vary during the program. For example, in a holiday program, the sales rate in the week before Christmas may substantially exceed the sales rate the week prior. The relationship between sales rates in these two weeks may vary by product category, price point, or other factors. Determining the characteristic shape of the selling profile over time is difficult because of calendar differences between years and different promotional events from year to year.
Actual sales in particular locations vary widely from planned sales. Many locations may have small sales volumes, at least for specific items. Random variations in sales have a substantial impact on small sales volumes. Therefore, it is useful for an allocation algorithm to reflect the randomness of sales at specific locations, to avoid excess inventory in some locations and lost sales opportunities in other locations.
Retailers may designate presentation quantities for each location and item. Presentation quantities are quantities adapted to a fixture or a location display goods to present attractively. It is useful for an allocation methodology to ensure that location presentation quantities are provided at the outset and maintained. Because retailers sell all of the product purchased for a program, location on-hand quantities eventually fall below the presentation quantity. The longer the location presentation quantity can be maintained, the more attractive the program appears to customers. In the case of coordinated products like a matching dress, blouse and vest keeping the presentation quantities for all of the products coordinated is also useful. It may be helpful to adjust and reduce presentation quantities as overall inventory is depleted or as a close out date approaches, to avoid excess stock in lower volume locations and lost sales opportunities at higher volume locations.